Trade and Export Finance Ltd

What we deliver

Financing foreign trade

Completed deals

Report & Media

Home

Financing trade

Exploring the options

Our Forex service

FAQs

Financing international trade

Trade and Export Finance Ltd has a vital role in financing the international trade requirements of its customers. International business is no different from domestic trading provided that due care and diligence are observed. The international trade cycle makes use of the same investment funds, overdrafts and other working capital: suppliers purchase raw materials which are turned into manufactured goods, which are sold on.

Where differences arise is that companies trading internationally often rely on, and have to give, longer periods of credit. Importers prefer to pay for the goods only when they arrive in the purchaser’s home port. Exporters are normally required to give longer credit.

As the typical credit period in Europe is between 30 and 60 days, this can have a significant impact on cash flow. Being able to secure the best banking terms, with foreign exchange sourced at the best rates, is key to any business exporting profitably.

Assistance for exporters
The UK Government introduced the Export Finance Guarantee Scheme (ExFG) in March 2011. It was established to provide assistance to Exporters with a total turnover in excess of £25m.

This was followed a month later with a parallel scheme for smaller companies - with a turnover below the £25m threshold for the main ExFG assistance - who could secure some measure of Government support.

Although the banks are promoting the export scheme, only one has taken the initiative and is considering applications on a case by case basis.

The view of the banking sector is that the export guarantees are a pilot scheme at this stage and that companies should therefore tread carefully through this particular minefield.

The need for financing trade deals - a case study
Zinzam Manufacturing Ltd was selling into Australia and was required to give 60 days credit. Gross profit on the transaction was 40% . The buyers were seeking to purchase £100,000 worth of goods per month.

The Cash flow forecast shows the effect of increased trade into one market expanding business into other markets will have a multiplier affect on the company's working capital requirements which needs to be financed as positive cash flow is often eroded by this increase in business volume. This chapter will explain some of the solutions available to companies who require additional working capital.

There are two important considerations here:

		Working Capital
		Many companies sell on open account terms. 85% of sales into Europe are funded from working capital. This working capital is often provided by an overdraft facility, therefore, any undue delays of obtaining payment will impact on cash flow and increase the cost of borrowing with your bank. The company was selling on 60 day terms but an additional 31 days credit has been taken by the buyer. Zinzam Ltd are funding this extra 31 days at a cost of £9,555 per annum or £27 per day, based upon an interest rate of 9% per annum. Many companies are not aware of this financing cost, which is often lost in the overall interest charge levied quarterly by their banks. Exporters should use this formula on their overseas sales, to ensure that profit margins are not being eroded. Many payments are delayed in reaching the beneficiaries due to the lack of information that exporters provide their buyers. German companies often quote several bank details on their invoices, the bank details include SWIFT address, sorting code and bank account details.
		Check the SWIFT address for your bank
		This is an unique address of banks world-wide, who are members of the Society for World-wide Financial Telecommunications (SWIFT). In effect, this is an electronic messaging system for use between member banks which simplifies the transmission of payment instructions. £120 million is held in the suspense accounts of British banks because overseas remitters have failed to provide sufficient details to allow the British banks to pay funds away. Exporters should inform their overseas customers of the SWIFT address and telex numbers of your bank. It is also wise to include the banks sorting code and account number to ensure that payments in your favour, find their way into your account in the shortest time possible.

Call Trade & Export Finance on 0870 950 7133 or email enquiries@taefl.co.uk